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Ninth Circuit hands pharmaceutical industry Valentine's Day gift

On February 14, 2011, the U.S. Court of Appeals for the Ninth Circuit in Christopher v. SmithKline Beecham Corp. (Case No. 10-15257) affirmed a district court decision holding that pharmaceutical sales representatives (“reps”) for GlaxoSmithKline (“Glaxo”) are exempt from overtime under the Fair Labor Standards Act because they qualify as “outside sales” employees.

As is typical in the pharmaceutical industry, the Glaxo reps at issue in the case were responsible for “calling” on physicians to encourage them to prescribe Glaxo’s products to patients. Standard industry practice is to classify reps as exempt from overtime pursuant to the outside sales and/or administrative exemptions. Recently, however, reps from more than a dozen different companies have sued for overtime, claiming that their job duties do not qualify them for these exemptions. These cases have had differing results. Most notably, the Second Circuit held last summer that reps for Novartis Pharmaceutical Corporation did not meet the criteria for either exemption. Giving controlling deference to an amicus brief filed by the Department of Labor (“DOL”), the Second Circuit held that because reps are prohibited by federal law from actually entering into contracts to sell their employer’s products, they do not qualify for the outside sales exemption, which applies to employees “[w]hose primary duty is[] making sales.”

In Christopher, the Ninth Circuit rejected the “rigid, formalistic interpretation” of the term “sales” advocated by the DOL and espoused by the Second Circuit. Looking to the purpose of the outside sales exemption, the court determined that the term “sales” must be interpreted broadly. The Ninth Circuit also compared Glaxo’s reps to other types of sales employees and found that they “share many more similarities than differences,” including the fact that they “are driven by their own ambition and rewarded with commissions when their efforts generate new sales.” These similarities demonstrated that the reps should be considered exempt outside salespersons.

In reaching this decision, the Ninth Circuit held that an amicus brief filed by the DOL was not entitled to deference for two reasons. First, the court held that the DOL regulation at issue merely “paraphrase[s] the statutory language,” and that the DOL has no “special authority to interpret its own words” in such circumstances. The court also held that deference was not warranted because the amicus brief represented a departure from “pharmaceutical industry norms[] and the acquiescence of the Secretary [in the exempt classification of similar positions] over the last seventy-plus years.”

The Ninth Circuit’s decision could influence the many pharmaceutical sales representative cases that remain pending, and it could also influence the outcome of Novartis’s petition for Supreme Court review of the Second Circuit decision. At a minimum, pharmaceutical companies should find this decision helpful in arguing that they exercised good faith in classifying pharmaceutical sales representatives as exempt because of the decision’s emphasis on the DOL’s long history of acquiescence in this practice.

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